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Inflation expectations in the Eurozone are well anchored and there is not major inflation or deflation risks in view, European Central Bank Executive Board member Lorenzo Bini Smaghi said on Friday. But, a rise in commodity price may lead to inflation putting downward pressure on growth, he cautioned.
The ECB's latest staff projections showed Thursday that inflation would be in a range of 0.8% to 2% in 2011, suggesting that the key policy rate would be left on hold until late 2010. In a speech at the Chicago Booth School of Business, Bini Smaghi said the ECB staff projections on growth were slightly more conservative than other estimates, in particular the OECD and the consensus market forecasts.
The ECB staff has become more optimistic on the economic outlook after the economy emerged from the recession in the third quarter. They forecast a contraction between 4.1% to 3.9% in 2009 before growing 0.1% to 1.5% in 2010 and 0.2% to 2.2% in 2011. In September, the ECB staff had forecast 0.2% growth for 2010 after a 4.1% contraction this year.
Bini Smaghi said Thursday's decision to exit non-conventional measures was taken after seeing proper functioning of money markets. He said the exit was gradual and timely. The central banker noted that the risks of exiting too late from monetary stimulus were greater than the risk of exiting too early.
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